Who's next?

When FED said for the first time the “taper” word – in May 2013 – the most hit economies were India and Brazil. Of course even the other emerging economies suffered too but not with the same intensity. I am sure all of you remember the 2013’s summer.

This year, on the same basis, seems to be Turkey’s and South Africa's turn. Again, – as it happened back in 2013 – the other emerging economies are suffering too but not as much as these two.

Since the FED delivered the first taper, at their December meeting, I had no doubt about the fact that in January we will have the second one as I have no doubts that at their next meeting – in March – we will see the next 10 bln off the table. We will see the QE with only 45 bln/month starting March 2014 ONLY if the US bonds will not raise theatrical as it did in 2013’s summer. Looking at how the markets reacted yesterday evening when the FED delivered the second cut, when the UST10Y yields dropped to a 2 months low, I really have no doubts about the March’s third taper.

My question is: if the FED continue to taper without looking at how the emerging markets are struggling, who will be the next victim? For now, the USD/TRY as USD/ZAR or USD/MXN are making new record highs everyday as last year made USD/INR or USD/BRL.

My bet is on Norway and Singapore. They are not emerging markets is true but I would not be surprised to see the investors taking out their money from these two economies due to the overheated house market. The speculative excesses financed with ultra-cheap liquidity in the last several years, are much higher than those in the emerging markets are. Those of you, who live in these countries, know what I am talking about. The house prices grew faster and higher than in other economies.

I think, today, we have even the confirmation that the investors are thinking at Norway: the rate action broke a descending trend line on a weekly chart and a very strong resistance that kept the USD/NOK into a consolidation range for three months. Look at the consolidation as a time when investors knew what is going to happen, but they needed some more certainties before they can make their move. FED and indirectly Turkey and South Africa gave them the certainties they were looking for.

USD/NOK broke 6.2211, which kept this pair into a consolidation around the 61.8% Fibonacci level as you can see on my chart. What’s next? By the time I am writing this article, the rate action is at 6.2420 but I need to see the weekly candle closing above the resistance as also above the descending trend line to make it a safer trade. Anyway either you decide to enter now or to wait for the weekly candle to close tomorrow your stop loss should be in the 6.1000 – 6.1300 area – under the 61.8% level which I expect to become a support now. The target? The 78.6% Fibonacci Level should be the first resistance (6.4000) but I would go further on longer term and fix my target at 6.700 – the 100% Fibonacci level.

In June 2013, Rune Bjerke, the president of the biggest bank in Norway (DNB) said that Norway’s golden era was over. Was he right?